Now that 2013 is history, here's a recap of some of the taxes that went up last year: Payroll tax (from 4.2% to 6.2%); payroll taxes on those earning more than $250,000 rose another 0.9% on top of the other rate increase; top marginal rate (from 35% to 39.6%); personal exemptions began phasing out for couples earning more than $300,000; ditto for itemized deductions; capital gains and dividends tax increased from 15% to 20%; the death tax on estates larger than $5 million rose from 35% to 40%; taxes on business investment increased; the ObamaCare surtax of 3.8% kicked in for those earning more than $250,000 per year; medical device manufacturers now pay 2.3% excise tax on their products; the deduction for medical expenses was reduced; the corporate deduction for Medicare Part D subsidy expenses was eliminated; and health benefits deductions for corporate executives were limited.

Well I was mad when I read about the Olympic medal tax. I thought just another example of government ripping off people. But now I am more mad @ the response. The "notion" [using the bamster's favorite word] that suddenly Olympians should not have to pay what most everyone else has to pay is illogical, unfair and again manipulating tax codes for political gain.

And for the records. Olympians aren't going to the Olympics to represent the US. Maybe is was that way 100 years ago. Now they all go to cash in. Nothing wrong with that. But why cannot I not make a stock gain without being ripped off. Why do I have to pay taxes on everything?

This whole thing wherein politicians pick and choose who pays and who doesn't and how much has got to go.

****February 13, 2014, 04:29 pm WH: Don't tax Olympians on medals

By Justin Sink

The White House said Thursday that President Obama still believes American Olympians shouldn’t have to pay income taxes on the medals they win.

“The president believes we should support efforts to ensure that we’re doing everything we can to honor and support our Olympic athletes who have volunteered to represent our nation at the Olympic Games,” White House spokesman Bobby Whithorne told Yahoo News. “We still support this effort.”

During the 2012 presidential campaign, the White House said those who medaled in the summer games should be exempt from taxes on their winnings. “If it were to get to his desk, he would support it," White House press secretary Jay Carney said of proposed legislation.

But a bill by Sen. Marco Rubio (R-Fla.) never moved in the Senate.

"Our tax code is a complicated and burdensome mess that too often punishes success, and the tax imposed on Olympic medal winners is a classic example of this madness," Rubio said in 2012. "Athletes representing our nation overseas in the Olympics shouldn't have to worry about an extra tax bill waiting for them back home."

U.S. athletes are paid cash prizes when they place in Olympic events: $25,000 for a gold, $15,000 for a silver and $10,000 for a bronze.

How much athletes pay back to Uncle Sam will depends largely on what other income they report for the year. But according to an analysis by the anti-tax group Americans for Tax Reform, gold-medal winners in the top tax bracket could see nearly $10,000 of their $25,000 winnings taken by the government.

Even athletes in the lowest tax bracket could fork over as much as $2,500 on a gold medal prize, $1,500 on a silver and $1,000 for a bronze.

Three Republican lawmakers — Reps. Blake Farenthold (R-Texas), Walter Jones (R-N.C.) and Pete Sessions (R-Texas) — proposed a bill similar to Rubio's before this year's games, but it has also failed to gain traction..

Camp's proposal is not exactly what I am looking for, but I respect him for stepping forward with a real plan. John E. Sununu comments on it in the Boston Globe today.

Tax reform: Ski it if you dareBy John E. Sununu March 03, 2014

When David Camp, chairman of the House Ways and Means Committee, released tax reform legislation last week, the first thing that sprang to my mind was Mount Washington’s Tuckerman Ravine. Looming just 2 miles or so from the Pinkham Notch visitor center, the greatest natural snow bowl east of the Mississippi beckons thousands of hardened skiers every year. The ravine’s 50-foot snow pack entices them with the promise of beauty and exhilaration. For those who conquer it, there’s a sense of achievement to which nothing else compares.

In Washington, the siren of tax reform calls out to devoted policy wonks in the same way. Designing a simpler tax system, like skiing the ravine, allows suitors to take on as much as they dare: corporate taxes, personal income taxes, or the entire 75,000-page code. At Tuckerman, the higher you climb, the steeper the grade. The ultimate thrill is reserved for those willing to attack the sheer face from the snowfields above.

Approaching the steep headwall from that relatively flat terrain, the slope falls away so abruptly that skiers cannot possibly see what awaits below — until they pass the point of no return. Tax seminars, hearings, and speeches are the Washington version of those snowfields. Everyone gets the opportunity to posture, talk about what could be, and pretend they know what lies over that horizon. But as Camp found out last week, talking and doing are different things. Once you crest the lip and are clinging to a 55-degree slope, the mountain becomes a lonely place.

Camp’s loneliness has nothing to do with ability. The Michigan Republican is an outstanding congressman with an effective, inclusive leadership style. But the “discussion draft” he made public contains something that makes most members of Congress uncomfortable: details. Every deduction, credit, exemption, and loophole makes the tax code more complicated, and simplification demands that they must go. Meaningful tax reform requires trade-offs. But when confronted with hard choices, most members of Congress start looking for a way to bail out.

Camp’s bill demonstrates the courage of his convictions. Rafts of deductions are capped, phased out, or eliminated altogether. The bill reduces the number of personal income tax brackets from seven to three: 10 percent, 25 percent, and an additional surcharge on income over $400,000. The corporate tax rate would drop from 35 percent today — one of the highest in the world — to 25 percent.

Wisely, Camp designed his bill to be revenue-neutral. It doesn’t attempt to raise or cut tax collections overall. Perhaps more important, it is “distributionally” neutral; he makes no effort to raise or lower taxes for the rich, the poor, or the middle class. This debate should be about how we pay, not how much — and about making the code and our entire economy more efficient, productive and fair.

Avoiding class warfare rhetoric makes for a smoother trail, but those who benefited from the code’s complexity will still be unhappy. Every wrinkle in the current tax code has its own constituency. Farmers, ranchers, teachers, caregivers, and gamblers — an endless list — are singled out within the law. Everyone loves the idea of simplicity, but getting there will require that we think of ourselves as taxpayers, not part of a special group.

To date, few in Congress have been willing to support the bill publicly. The more narrow-minded have clung to their opposition to the bill’s “bank tax,” which was designed to pay for future bailouts under the Dodd-Frank regulations passed in 2010. If that’s the biggest flaw they can find, fine. Drop that piece and get on with it. At least we’ll learn who has genuinely committed to reform and who just wants to pay lip service.

Most important, everybody needs to realize no one can possibly agree with every element in such a comprehensive bill. You need to believe that the fundamental economic fairness that comes from taking the plunge makes it worth the trouble . . . and then push over the edge.

A good friend once described his favorite Tuckerman moment, watching an enthusiastic father encourage a group of young teenagers to take on the headwall. “Come on guys!” he waved while crossing the upper lip. Catching an edge on his crucial first turn, he bounced and slid like a rag doll several hundred yards to the floor of the ravine. The young gaggle behind followed without incident, no worse for having witnessed the spectacle.

Camp’s tax reform effort is unlikely to pass, but his willingness to take the plunge with honesty and substance deserves enormous credit. Most important, if he inspires just a few to follow his courageous path, we may remember his pioneering run for a long time.

John E. Sununu, a former Republican senator from New Hampshire, writes regularly for the Globe.

How to Energize a Lackluster RecoveryAllowing the full and immediate deductibility of capital investment would spur growth and raise wages.By Edward P. LazearApril 20, 2014 5:35 p.m. ET

April always brings complaints about the pain of paying taxes—and the complaints are justified. According to the Bureau of Economic Analysis, over 30% of U.S. gross domestic product is taxed away to fund federal, state and local governments. Tax compliance costs are also large, estimated to be around 1% of GDP.

The hidden cost of the tax system is the biggest of all—namely, the slower economic growth that results from taxing investment, which impedes the formation of capital and hinders productivity and wage growth. An easy way to remove the impediment to growth is to move toward a consumption tax by allowing the full and immediate deductibility of capital investment.

The argument rests on two points. First, consumption taxes are better for economic growth than are income taxes. Second, allowing full expensing (immediate deductibility) of investment turns the current tax system into a consumption tax.

Consumption taxes are better for economic growth because they create stronger incentives to save and invest than do income taxes. Under an income tax, a person who consumes what he earns immediately is taxed once, specifically on the earnings that he receives in that year. If instead he invests what he earns, the interest on that investment, which is compensation for deferring consumption, is also taxed. This pushes him toward consuming more now and saving less.

The reduced incentive to save that results from taxing returns drives up interest rates and retards investment. Incentives to invest would be improved if the returns were untaxed. By contrast, a consumption tax does not tax the returns to investment. It taxes only once, at the time that actual consumption occurs. Moving to a consumption tax eliminates the tax on returns to investment and improves investment incentives.

Allowing investment expenses to be fully and immediately deductible turns an income tax into a consumption tax, but the logic is subtle. All of an economy's output is used to produce either current consumption or investment goods. If all income, which must equal output, is taxed, then both consumption and investment are taxed. But if we tax only the part of output that is not investment by allowing investment expenditures to be deductible, all that remains is consumption so only consumption is taxed.

There is no need for any complicated new tax laws or bureaucracies to make this change. Investments in plants, equipment, R&D and even human capital would be deductible from profits when paying taxes, and the deduction could be used now or against future or past tax liabilities.

The potential benefits of moving away from taxing investment to a consumption tax are well documented. A 2005 Tax Advisory Panel appointed by President George W. Bush estimated from Treasury data that moving to a consumption tax by removing taxes on investment would result in a 5%-7% increase in GDP. (Its scoring included lower and flatter individual and corporate rates, though expensing accounted for most of the gain.) A 2001 study in the American Economic Review by David Altig, Alan J. Auerbach and others estimates that GDP would rise more than 9% by moving to full expensing of investment spending (with a flat tax).

Taxing investment reduces after-tax returns to investing. Investors care about after-tax returns and a tax policy that lowers investment returns is especially harmful to long-term economic growth. For example, a 2001 report by the Organization for Economic Cooperation and Development, "Tax Policy Reform and Economic Growth," found that corporate taxes are the most harmful type of tax for economic growth, followed by personal income taxes and then consumption taxes, with recurrent taxes on immovable property being the least harmful tax.

Capital taxation introduces the most distortions because capital can move across international borders easily. If one country overtaxes investment, the marginal investor will move money to a country that treats investment more favorably. It is more difficult for labor to move so taxing labor has fewer adverse incentives. Finally, land is truly locked in and land taxes are the least problematic from an economic efficiency standpoint.

Lower corporate tax rates is a move in the right direction, but it is not as effective in stimulating investment as is full-expensing. The bang-for-the-buck was estimated by Treasury to be about four times as high for full-expensing than for lowering rates. The reason? Lowering corporate rates reduces taxes for all capital, old and new alike. An investment that was made 10 years ago gets the benefit of lower rates as does one that is made tomorrow. But full expensing applies only to new investment because it is only investment going forward that is deductible. As a result, all of the power of reducing taxes works for new investment in the case of full expensing.

Full expensing will likely be labeled a "trickle down" policy that will not help the working American. This is unfortunate because labor would benefit greatly. Investment is crucial for increasing labor productivity and higher productivity is necessary for higher wages. Productivity and wages move together. Without productivity increases wages cannot grow.

There are many changes that would improve the efficiency of the tax code, but cutting the tax on investment heads the list.

Mr. Lazear, chairman of the President's Council of Economic Advisers from 2006-09, is a professor at Stanford University's Graduate School of Business and a Hoover Institution fellow.

How to Energize a Lackluster RecoveryAllowing the full and immediate deductibility of capital investment would spur growth and raise wages.By Edward P. LazearApril 20, 2014 5:35 p.m. ET

April always brings complaints about the pain of paying taxes—and the complaints are justified. According to the Bureau of Economic Analysis, over 30% of U.S. gross domestic product is taxed away to fund federal, state and local governments. Tax compliance costs are also large, estimated to be around 1% of GDP.

The hidden cost of the tax system is the biggest of all—namely, the slower economic growth that results from taxing investment, which impedes the formation of capital and hinders productivity and wage growth. An easy way to remove the impediment to growth is to move toward a consumption tax by allowing the full and immediate deductibility of capital investment.

The argument rests on two points. First, consumption taxes are better for economic growth than are income taxes. Second, allowing full expensing (immediate deductibility) of investment turns the current tax system into a consumption tax.

Consumption taxes are better for economic growth because they create stronger incentives to save and invest than do income taxes. Under an income tax, a person who consumes what he earns immediately is taxed once, specifically on the earnings that he receives in that year. If instead he invests what he earns, the interest on that investment, which is compensation for deferring consumption, is also taxed. This pushes him toward consuming more now and saving less.

The reduced incentive to save that results from taxing returns drives up interest rates and retards investment. Incentives to invest would be improved if the returns were untaxed. By contrast, a consumption tax does not tax the returns to investment. It taxes only once, at the time that actual consumption occurs. Moving to a consumption tax eliminates the tax on returns to investment and improves investment incentives.

Allowing investment expenses to be fully and immediately deductible turns an income tax into a consumption tax, but the logic is subtle. All of an economy's output is used to produce either current consumption or investment goods. If all income, which must equal output, is taxed, then both consumption and investment are taxed. But if we tax only the part of output that is not investment by allowing investment expenditures to be deductible, all that remains is consumption so only consumption is taxed.

There is no need for any complicated new tax laws or bureaucracies to make this change. Investments in plants, equipment, R&D and even human capital would be deductible from profits when paying taxes, and the deduction could be used now or against future or past tax liabilities.

The potential benefits of moving away from taxing investment to a consumption tax are well documented. A 2005 Tax Advisory Panel appointed by President George W. Bush estimated from Treasury data that moving to a consumption tax by removing taxes on investment would result in a 5%-7% increase in GDP. (Its scoring included lower and flatter individual and corporate rates, though expensing accounted for most of the gain.) A 2001 study in the American Economic Review by David Altig, Alan J. Auerbach and others estimates that GDP would rise more than 9% by moving to full expensing of investment spending (with a flat tax).

Taxing investment reduces after-tax returns to investing. Investors care about after-tax returns and a tax policy that lowers investment returns is especially harmful to long-term economic growth. For example, a 2001 report by the Organization for Economic Cooperation and Development, "Tax Policy Reform and Economic Growth," found that corporate taxes are the most harmful type of tax for economic growth, followed by personal income taxes and then consumption taxes, with recurrent taxes on immovable property being the least harmful tax.

Capital taxation introduces the most distortions because capital can move across international borders easily. If one country overtaxes investment, the marginal investor will move money to a country that treats investment more favorably. It is more difficult for labor to move so taxing labor has fewer adverse incentives. Finally, land is truly locked in and land taxes are the least problematic from an economic efficiency standpoint.

Lower corporate tax rates is a move in the right direction, but it is not as effective in stimulating investment as is full-expensing. The bang-for-the-buck was estimated by Treasury to be about four times as high for full-expensing than for lowering rates. The reason? Lowering corporate rates reduces taxes for all capital, old and new alike. An investment that was made 10 years ago gets the benefit of lower rates as does one that is made tomorrow. But full expensing applies only to new investment because it is only investment going forward that is deductible. As a result, all of the power of reducing taxes works for new investment in the case of full expensing.

Full expensing will likely be labeled a "trickle down" policy that will not help the working American. This is unfortunate because labor would benefit greatly. Investment is crucial for increasing labor productivity and higher productivity is necessary for higher wages. Productivity and wages move together. Without productivity increases wages cannot grow.

There are many changes that would improve the efficiency of the tax code, but cutting the tax on investment heads the list.

Mr. Lazear, chairman of the President's Council of Economic Advisers from 2006-09, is a professor at Stanford University's Graduate School of Business and a Hoover Institution fellow.

Important and interesting work. I can't tell if he is suggesting raising tax rates on consumption in exchange for lowering taxes on capital, or is he simply saying these taxes are self defeating on the economy.

That said, we are not headed politically toward anything that looks like zero tax rates for investment income. Every Republican contender for the Presidency in 2012, from Herman Cain to Jon Huntsman to Mitt Romney, had an aggressive proposal for lowering the tax on capital that would have grown the economy and increased the demand and pay for labor. They all lost and we ended up instead with much higher tax rates on capital with a diminishing demand for labor. The lesson to learn from the political failure of good ideas is perhaps unknown at this point.

Consumption taxes: Heaping a regressive federal consumption tax on top of a revenue source relied on heavily by the states is not a good idea either. The Herman Cain 9-9-9 plan was bold and tempting - and far better than our current system. But it wasn't going to happen.

Still the professor is right. We need people to know that the war on wealth and the taxes that prevent capital movement and formation mostly result in keeping more people from getting wealthy. Those that were already wealthy survive just fine.

Real tax reform needs to done in conjunction with spending and entitlement reforms that make government's load on the economy smaller.

Investors undertook their annual pilgrimage to Omaha this weekend to hear Warren Buffett opine on markets and the world. One surprise is that the Berkshire Hathaway CEO seems to have adapted his famous Buffett Rule of taxation when it applies to his own company.

Readers may recall the original Buffett Rule that President Obama offered as part of his re-election campaign that essentially posited a minimum tax rate for the rich of about 30%. Mr. Buffett heartily endorsed the idea and Mr. Obama hauled out St. Warren as a soak-the-rich cudgel to beat up Mitt Romney in countless speeches.

So it was fascinating to hear Mr. Buffett explain that his real tax rule is to pay as little as possible, both personally and at the corporate level. "I will not pay a dime more of individual taxes than I owe, and I won't pay a dime more of corporate taxes than we owe. And that's very simple," Mr. Buffett told Fortune magazine in an interview last week. "In my own case, I offered one time to match a voluntary payment that any Senators pay, and I offered to triple any voluntary payment that [Republican Senator] Mitch McConnell made, but they never took me up on it."

The billionaire was even more explicit about his goal of reducing his company's tax payments. "I will do anything that is basically covered by the law to reduce Berkshire's tax rate," he said. "For example, on wind energy, we get a tax credit if we build a lot of wind farms. That's the only reason to build them. They don't make sense without the tax credit."

Think about that one. Mr. Buffett says it makes no economic sense to build wind farms without a tax credit, which he gladly uses to reduce his company's tax payments to the Treasury. So political favors for the wind industry induce a leading U.S. company to misallocate its scarce investment dollars for an uneconomic purpose. Berkshire and its billionaire shareholder get a tax break and the feds get less revenue, which must be made up by raising tax rates on millions of other Americans who are much less well-heeled than Mr. Buffett.

This is precisely the kind of tax favoritism for the wealthy that Mr. Romney's tax reform would have reduced, and that other tax reformers want to stop. Too bad Mr. Buffett didn't share this rule with voters in 2012.

The conservative or small government view is that tax rates should be as low as possible and people should be allowed to keep as much as possible of their legally obtained income, after paying a fair share of necessary public expenses. The Herman Cain 9-9-9 plan comes to mind, keeping tax rates at single digits.

But Big Government Leftists are losing revenues because of other goals, codified in punitive taxation (and other ill-advised policies).

Maximizing revenues is not Obama's top tax goal. When confronted with the facts of declining revenues with increasing capital gains tax rates, he admitted he is more concerned (as is Piketty) with holding back wealth ("spread the wealth around") than he is with maximizing revenue.

What tax rates maximize revenues?

The key determinant is the elasticity of taxable income.

Taking this from a post today (Alan Reynolds) on 'Economics':

"...ETI of 1.3 for the top 1%. This implies that the revenue-maximizing top marginal rate would be 33.9% for all taxes, and below 27% for the federal income tax."

Why not (worst case) limit the top federal tax rate to 25%, allow the private sector to grow, maximize our revenues and use the money to build back our infrastructure, invest in national defense, maintain our safety net, secure our borders, etc. with all the revenues. Just wondering.

American businesses are heading for the exits to escape the U.S. tax code. Medical device company Medtronic MDT +0.34% announced recently that it planned to acquire the Ireland-based firm Covidien COV +0.46% and relocate headquarters in Dublin, making it the biggest company yet to leave our shores for a more favorable tax climate. It's just the latest example, and the flight will continue until the U.S. reforms its outdated, uncompetitive tax code.

The basic U.S. corporate tax rate is 39%, the highest on the planet. The average rate among other major industrialized countries is 25%. Worse, the U.S. tax rate applies not only to income earned within U.S. borders, but also to profits American companies make overseas.

That is in large part why more than 20 major American companies have reincorporated elsewhere in the past two years. In 2012, for example, Eaton, a manufacturing company from my home state of Ohio, merged with Cooper Industries, a much smaller Irish company. The new company established its headquarters in Dublin, substantially reducing its tax liability in the process. Businesses are willing to pay to put a few miles between them and the IRS: U.S. companies in 2013 paid upward of 55% more than their target's market price for deals that allowed them to move overseas, according to a May report in this newspaper. Domestic mergers, on the other hand, usually only yield a 20% premium.

The U.S. tax system is also making American businesses more vulnerable to foreign takeovers. The American beer company Anheuser-Busch, for example, was absorbed in 2008 by Belgian-Brazilian firm, In-Bev. Other brewers have followed suit, driven by tax savings. The largest U.S.-based beer company in 2013 was DG Yuengling & Son, which has a U.S. market share of about 1.5%. Sam Adams is the second-largest, with a market share of 1.3%. The sad reality is that foreign purchasers, which can relocate their targets' headquarters overseas, have a huge advantage over U.S. purchasers. Thanks to our tax code, American firms are both less able to fend off foreign purchasers and less able to grow and become more competitive through acquisitions.

Meanwhile, the tax code limits job creation because it encourages U.S. firms to keep foreign earnings outside the U.S. and away from the U.S. tax collector. About $2 trillion that could be used to expand jobs and opportunities in the U.S. now sits overseas, according to Bloomberg estimates. American workers, who according to a 2006 Congressional Budget Office report bear nearly 74% of the corporate tax burden, end up with lower wages and reduced benefits.

Forcing U.S. companies to stay here is no solution. Congress has tried that before, and several of my colleagues have again proposed ratcheting up existing IRS rules that penalize certain cross-border mergers. That piecemeal approach will only hurt American employers and workers who, as a result, will be even less competitive in a global economy built on free movement of capital and labor.

The president and Congress should instead overhaul the tax system, as other countries around the world have already done. To attract investment, Canada in 2012 lowered its federal corporate tax rate to 15%, the last cut of a seven-point decline that began in 2006. In fact, every single one of our major foreign competitors has reduced its corporate tax rate in the past 20 years.

Industrialized countries have also modernized their international tax rules. Every other country in the G-8, and 26 of 34 member countries of the Organization for Economic Cooperation and Development, now have "territorial" tax systems. A country with a territorial system generally taxes only income earned inside its borders; active business income earned abroad is taxed only in the country where it is earned.

Here's what the U.S. can do to catch up: First, cut the corporate tax rate to 25%, bringing America in line with the OECD average. That would undoubtedly spur job creation. It would also bolster revenues, as the nonpartisan Joint Committee on Taxation showed in its February analysis of Ways and Means Committee Chairman Dave Camp's tax-reform proposal.

Second, simplify the tax code, which is rife with special preferences, and use the money saved from closing those loopholes to finance the 10 percentage point rate reduction.

Third, create a more competitive international tax regime. Roughly 80% of the world's purchasing power and 95% of its consumers are beyond U.S. borders, and American companies must be able to compete for these customers. As such, the U.S. should adopt a territorial-type tax system that taxes active business income only where it's earned. In addition, we should implement clear, enforceable rules to prevent sheltering income in low-tax countries.

Congress should act immediately to end the flight of U.S. businesses by overhauling the corporate tax code. That would go a long way in making America a magnet for investment again.

I think Rand Paul has it right on policy, the flat tax, but Mike Lee and Marco Rubio have a better grasp on the the politics of it. To point out the obvious, tax reform that never becomes law is not tax reform.

In a statement to THE WEEKLY STANDARD today, Lee responded to TPC's analysis and announced that he's already working with Florida senator Marco Rubio on a "new, comprehensive, pro-family, pro-growth tax reform proposal that we hope to introduce later this year."

Lee's full statement:

I thank the Tax Policy Center for their thorough work on my initial proposal to reform the individual income tax code and restore tax fairness to middle-class parents and families.

As I announced upon its introduction, the Family Fairness and Opportunity Tax Reform Act was meant as a first draft of a broader project to make the entire tax code simpler, fairer, and more pro-growth.

Initial estimates suggested the plan would yield a modest overall tax cut compared to the pre-Obamacare baseline. TPC's model scores it somewhat lower than that, and that's valuable information we can incorporate into the next revision.

Senator Marco Rubio and I have already begun work on a new, comprehensive, pro-family, pro-growth tax reform proposal that we hope to introduce later this year. Elimination of the Parent Tax Penalty should be a top priority for conservatives, and at the center of the overdue tax reform debate.

Those who buy it once as a novelty pay a little extra and pay a small tax - once. Those who are heavy users ALL have medical license, and avoid the tax. (Can you say "chronic pain"?) The occasional users in between all know someone and buy it the same way they used to, off the 'street', from unknown origins, untaxed and unregulated.

DENVER (CBS4) – High hopes for tax money isn’t as expected as the state’s legal marijuana industry isn’t bringing in as much money as anticipated. In fact, tax revenue is way below expectations. When voters approved recreational marijuana salesthe state predicted it would pull in more than $33 million in new taxes in the first six months. The actual revenue came up more than $21 million short. The problem is that buying pot is less expensive on the streets where people don’t have to pay taxes or fees. Medical marijuana is also less expensive than recreational pot, so those with medical cards are sticking to buying that way.

We're Number 32!A new global index highlights the harm from the U.S. tax code.Updated Sept. 14, 2014 7:23 p.m. ET

Any day now the White House and Sen. Charles Schumer (D., N.Y.) will attempt to raise taxes on business, while making the U.S. tax code even more complex. The Obama and Schumer plans to punish businesses for moving their legal domicile overseas will arrive even as a new international ranking shows that the U.S. tax burden on business is close to the worst in the industrialized world. Way to go, Washington.

On Monday the Tax Foundation, which manages the widely followed State Business Tax Climate Index, will launch a new global benchmark, the International Tax Competitiveness Index. According to the foundation, the new index measures "the extent to which a country's tax system adheres to two important principles of tax policy: competitiveness and neutrality."

A competitive tax code is one that limits the taxation of businesses and investment. Since capital is mobile and businesses can choose where to invest, tax rates that are too high "drive investment elsewhere, leading to slower economic growth," as the Tax Foundation puts it.

By neutrality the foundation means "a tax code that seeks to raise the most revenue with the fewest economic distortions. This means that it doesn't favor consumption over saving, as happens with capital gains and dividends taxes, estate taxes, and high progressive income taxes. This also means no targeted tax breaks for businesses for specific business activities." Crony capitalism that rewards the likes of green energy with lower tax bills while imposing higher bills on other firms is political arbitrage that misallocates capital and reduces economic growth.

The index takes into account more than 40 tax policy variables. And the inaugural ranking puts the U.S. at 32nd out of 34 industrialized countries in the Organization for Economic Co-operation and Development (OECD).

With the developed world's highest corporate tax rate at over 39% including state levies, plus a rare demand that money earned overseas should be taxed as if it were earned domestically, the U.S. is almost in a class by itself. It ranks just behind Spain and Italy, of all economic humiliations. America did beat Portugal and France, which is currently run by an avowed socialist.

The Tax Foundation benchmark compares developed economies with large and expensive governments, but the U.S. would do even worse if it were measured against the world's roughly 190 countries. The accounting firm KPMG maintains a corporate tax table that includes more than 130 countries and only one has a higher overall corporate tax rate than the U.S. The United Arab Emirates' 55% rate is an exception, however, because it usually applies only to foreign oil companies.

The new ranking is especially timely coming amid the campaign led by Messrs. Obama and Schumer to punish companies that move their legal domicile overseas to be able to reinvest future profits in the U.S. without paying the punitive American tax rate. If they succeed, the U.S. could fall to dead last on next year's ranking. Now there's a second-term legacy project for the President.

The new index also suggests taxation is a greater burden on business in the U.S. than in countries that American liberals have long praised as models of enlightened big government. Finland, Germany, Norway and Sweden, with their large social safety nets, all finish in the top 20 on the new ranking. The United Kingdom manages to fund socialized medicine while finishing 11 spots ahead of the U.S.

The new champion of tax competitiveness is Estonia, where—liberals may be astonished to learn—people enjoy the rule of law and even paved roads, despite reasonable tax rates. (See the list nearby.)

Liberals argue that U.S. tax rates don't need to come down because they are already well below the level when Ronald Reagan came into office. But unlike the U.S., the world hasn't stood still. Reagan's tax-cutting example ignited a worldwide revolution that has seen waves of corporate tax-rate reductions. The U.S. last reduced the top marginal corporate income tax rate in 1986. But the Tax Foundation reports that other countries have reduced "the OECD average corporate tax rate from 47.5 percent in the early 1980s to around 25 percent today."

This is also a message to self-styled conservative "reformers" who lecture that today's economic challenges aren't the same as they were under Reagan but propose to do nothing about the destructive U.S. corporate tax code. They're missing what could be the single biggest tax boost to economic growth and worker incomes. Abundant economic research, by Kevin Hassett and Aparna Mathur among others, has shown that higher corporate taxes lead to lower wages.

Rather than erecting an iron tax curtain that keeps U.S. companies from escaping, the White House and Congress should enact reform that invites more businesses to stay or move to the U.S.

Oh my God. No end to this. I am all for tax reform and changing the tax code so everyone pays the same amount and getting rid of most if not all deductions and making the code simple so everyone is treated fairly and those who can afford the expensive accountants and lawyers to find loopholes don't run around the complicated system and those at the bottom just don't sit back and have everyone else pay their way but this is insanity. Why should those at the top have to pay 90%? Why should Lebron have to have his wealth confiscated? Just because the Crats think they CAN and he still will play as hard to entertain them.

Trickle up poverty is not the answer. That won't solve our problems.

****Economists Say We Should Tax The Rich At 90 Percent

Posted: 10/22/2014 8:55 am EDT Updated: 10/22/2014 4:59 pm EDT

America has been doing income taxes wrong for more than 50 years.

All Americans, including the rich, would be better off if top tax rates went back to Eisenhower-era levels when the top federal income tax rate was 91 percent, according to a new working paper by Fabian Kindermann from the University of Bonn and Dirk Krueger from the University of Pennsylvania.

The top tax rate that makes all citizens, including the highest 1 percent of earners, the best off is “somewhere between 85 and 90 percent,” Krueger told The Huffington Post. Currently, the top rate of 39.6 percent is paid on income above $406,750 for individuals and $457,600 for couples.

Fewer than 1 percent of Americans, or about 1.3 million people, reach that top bracket.

Here is the conclusion from the report, charted:

marginal tax rates

What you’re seeing is decades of a more or less strict adherence to the gospel that tax cuts for the highest income earners are good. The trend began with President Kennedy, but his cuts were hardly radical. He lowered rates when the American economy was humming along, no longer paying for World War II and, relative to today, an egalitarian dreamland. To put things in perspective, Kennedy cut rates to around 70 percent, a level we can hardly imagine raising them to today. The huge drops -- from 70 percent to 50 percent to less than 30 percent -- came with the Reagan presidency.

In comparison to decades of cuts, Presidents George H.W. Bush, Bill Clinton, and Barack Obama each raised taxes at the top by a historically insignificant amount. Obama also proposed modest tax increases, raising taxes on families making more than $250,000 from 33 to 36 percent, and on individuals making more than $200,000 from 36 to 39.6 percent. These increases failed in the House.

A 90 percent top marginal tax rate doesn’t mean that if you make $450,000, you are going to pay $405,000 in federal income taxes. Americans have a well-documented trouble understanding the notion of marginal tax rates. The marginal tax rate is the amount you pay on your income above a certain amount. Right now, you pay the top marginal tax rate on every dollar you earn over $406,750. So if you make $450,000, you only pay the top rate on your final $43,250 in income.

A very high marginal tax rate isn’t effective if it’s riddled with loopholes, of course. Kindermann and Krueger's paper is also focused solely on income, not wealth, and returns on wealth are how the truly superrich make a living.

Despite these limitations, Kindermann and Krueger say that a top marginal tax rate in the range of 90 percent would decrease both income and wealth inequality, bring in more money for the government and increase everyone’s well-being -- even those subject to the new, much higher income tax rate.

“High marginal tax rates provide social insurance against not making it into the 1 percent,” Krueger told The Huffington Post. Here’s what he means: There’s a small chance of moving up to the top rung of the income ladder, Krueger said. If rates are high for the top earners and low for everyone else, there’s a big chance you will pay a low rate and a small chance you will pay a high rate. Given these odds, it is rational to accept high income tax rates on top earners and low rates for the rest as a form of insurance.

This insurance takes the form of low-income people paying dramatically less in taxes. “Everyone who is below four times median income” -- that’s about $210,000 for households -- “pays less,” Kruger said.

The paper assumes that tax rates won’t stop a future Bill Gates from wanting to start Microsoft. Instead, what it finds is that labor supply among the 1 percent would decline -- translation, they would work a little less -- but it “does not collapse.” That’s because of who the authors assume makes up the top income bracket: celebrities, sports stars, and entrepreneurs -- people with innate talents that are hugely rewarding, but only for a short period of time. They only have a few years to use their skills to make most of the money they will ever make. High tax rates don’t lessen their degree of desire to be productive, the authors said.

Krueger described the phenomenon like this: “How much less hard would LeBron James play basketball if he were taxed at a much higher rate? The answer is not much. “James knows he only has five years,” or so of peak earning potential, Krueger said, and so he will work to make as much as he can during that time. If high income tax rates robbed the would-be 1 percent of their stick-to-itiveness, the paper’s conclusions would change.

lebron james (LeBron James responds to a 90 percent top marginal tax rate)

And so whether you agree with this paper’s conclusion comes down, to a certain extent, to what you think of the 1 percent of income earners: who they are and why they make so much money. Over the last few decades, a huge portion of the rapid growth of the very highest incomes relative to the rest of us has been driven by rising executive and financial sector pay. The question, then, is if confronted with a vastly higher tax rate, would Jamie Dimon still behave like LeBron James.

1) There is the matter at what level the various rates kick in-- adjusted for inflation. My understanding is that the 90% rate of the Eisenhower years kicked in at a much higher level than today when adjusted for inflation;

2) The Kennedy supply side tax rate cuts increased revenues. Is the argument then that we should have higher rates and lower revenues?!?

3) Higher rates enable tax shelter games-- thus increasing both the unaccountable power of the Congress and its corruption by special interests;

4) the attendant misallocation of capital hits the entire economy to the detriment of all.

1) There is the matter at what level the various rates kick in-- adjusted for inflation. My understanding is that the 90% rate of the Eisenhower years kicked in at a much higher level than today when adjusted for inflation;2) The Kennedy supply side tax rate cuts increased revenues. Is the argument then that we should have higher rates and lower revenues?!?3) Higher rates enable tax shelter games-- thus increasing both the unaccountable power of the Congress and its corruption by special interests;4) the attendant misallocation of capital hits the entire economy to the detriment of all.

Crafty has this right on all points. Almost no one paid the 90% rate; and no one paid it again if they were assessed at that rate once. 90% applied marginally to incomes over the equivalent of millions today, affecting very few people, and of those very few it applied only to those who hadn't bothered to set up a shelter. Virtually no one.

Why would you raise rates if it doesn't increase revenues? Great question!Hauser's Law. Published in 1993 by William Kurt Hauser, a San Francisco investment economist, Hauser's Law suggests, "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." This theory was published in The Wall Street Journal, March 25, 1993.

We should be asking: What is the LOWEST tax rate that will bring in the revenue that we need?

As Crafty stated, exemptions, deductions and loopholes breed corruption. And the misallocation of assets stuck in place is harmful to all. Who measures lost opportunities?

The liberals play a shell game. It worked okay in the 1950s (It didn't) so let's do it now. But they don't like anything else from the 50s, like the ease of starting a business, the low regulatory burden, the ease o, and f hiring people, the high work ethic, minimal welfare system, and the intact families where the kids had a mom and a dad and the mom was usually home. Another aspect of the 1950s was that our biggest global competitors had been wiped out economically by two world wars. Will the tax hikers roll back the economic competition we now face from China and Asia to 1950s levels too? Good luck with that! A high, top marginal tax rate was the bug not the feature of the 1950s economy. We survived it; we didn't prosper because of it.

One example: A neighbor of ours growing up was the head of a big company, now Xcel Energy. Like the highly taxed Europeans today, he took his perks in untaxed benefits and no doubt kept his salary under those levels. His limo driver picked him up everyday to take him downtown to work and back home again every afternoon. A simple example of a misallocated, wasted resource. The guy had a car and knew how to drive just fine. Meals, travel, you name it, the few at the top knew how to take compensation in untaxable income.

JFK, a Democrat, on the high tax rates coming out of the 1950s:“It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”– John F. Kennedy, Nov. 20, 1962, president’s news conference

Good responses. Thanks. Hopefully we can have a candidate for '16 who can articulate these kinds of things. Paul articulates well and is trying to figure ways to get to the Dem's stronghold voting groups. But some of his positions I cannot support.

Do you know of examples how the very wealth were able to build shelters to avoid taxes in those days?

Doug and Crafty,Good responses. Thanks. Hopefully we can have a candidate for '16 who can articulate these kinds of things. Paul articulates well and is trying to figure ways to get to the Dem's stronghold voting groups. But some of his positions I cannot support. Do you know of examples how the very wealth were able to build shelters to avoid taxes in those days?

Real estate was the big (tax) shelter. And not losses of money, but "paper losses". Big earners bought big tax shelters. Leverage it if you want, keep your cash. Deduct the interest fully and add big depreciation even though the investment is going up in value. Then the capital gains are deferred forever or taxed at no more than 25%.

This example is from a WSJ article (and G M post previously, we were having this exact same discussion in Dec 2012): Google took me to me back to this thread!"For instance, a doctor who earned $50,000 through his medical practice could reduce his taxable income to zero with $50,000 in paper losses or depreciation from property he owned through a real-estate investment partnership. Huge numbers of professionals signed up for all kinds of money-losing schemes. Today, a corresponding doctor earning $500,000 can deduct a maximum of $3,000 from his taxable income, no matter how large the loss."http://online.wsj.com/articles/SB10001424127887324705104578151601554982808http://dogbrothers.com/phpBB2/index.php?topic=1791.msg68180#msg68180

Some of those tax shelters led to construction, and construction jobs etc. Not a complete waste of money, but misallocated resources nonetheless caused by the need to beat a confiscatory tax system. Construction projects are more temporary than the jobs created when investing and growing a business. Investments IMHO should all compete on the same playing field.

Schiff, WSJ, continued:"Those 1950s gambits lowered tax liabilities but dissuaded individuals from engaging in the more beneficial activities of increasing their incomes and expanding their businesses. As a result, they were a net drag on the economy. When Ronald Reagan finally lowered rates in the 1980s, he did so in exchange for scrapping uneconomical deductions. When business owners stopped trying to figure out how to lose money, the economy boomed."

The tax cuts of the Bush administration got a bad rap. Revenues actually surged once the tax rate cuts were fully in place. But Bush and Republicans also allowed spending to surge and government interference in the economy to surge, witness the Fed monetary insanity and federal government backed mortgage disaster.

Republicans were attacked for proposing tax cuts as the solution for everything and they aren't.

2006, 2008: Mostly for other reasons like quagmire in Iraq, the far left took over congress and then the White House.

2010: Born out of Democrat and government over-reach was the tea party movement. My take on its beginnings was a consensus was emerging that if you want to cut the burden of government on people in trillion dollar deficit, you had to cut spending first. We didn't. Republicans opposed all the new tax increases but couldn't stop or repeal what was already slated to happen, even when they took over the House.

2014-2016: The task now for Republicans and all limited government people is to reverse and repeal as much of the new programs and taxes as possible and then reform all that was screwed up before this lost decade began.

The new tax system must include lower tax rates for all who pay in - without the loopholes and without the aim of punishment for productive activities. We need a fair and simple system of raising revenues that applies evenly to all earners with minimal disincentives to work, invest, hire, expand, and produce. All of the redistributive efforts should be kept on the spending side of the equation and the goal there should be to diminish that need over time by growing the opportunities and expanding the number and proportion of people who work and start businesses.

Read through the table carefully. It begs a number of questions. Why are lower earners mad at or blaming upper earners for our problems and their problems?Why do we subsidize second and third quintile voters I mean earners more than low income earners?At $16 trillion in debt, why is someone making 50k getting a net subsidy at all?What is missing here is the marginal tax rate each person faces. The size of that all the way up and down might surprise you!Why do we have any marginal rate above 20% as a disincentive when we collect so much less?What tax system would collect more or the same and motivate people all the way up and down to produce more?

a) when you tax something you get less of it, and when you tax something less, you get more of it

b) There is a point on a curve, a marginal tax rate somewhere before you hit 100%, where if you raise the tax rate further you will collect LESS revenue.

c) The straw man argument against is when they say that for all points on the curve.

d) More pertinent, in almost all cases you do not get all the revenue projected without taking into account that the tax will cause you to see less of that activity, work, savings, investment, for examples.

The previous post is intended to add insight into this. Even ultra liberal, manupilaconomist Thomas Piketty was AGAINST this tax. Meanwhile, The President of the United States, the Governor of my state, the entire MSM, and half the voters are totally clueless as to why this punitive tax did not succeed.

It turns out that the attempt to punish wealth hurt investment, employment, the economy, the little guy and the entire nation of France. Who (expletive) knew??!!

PARIS (AP) — It was supposed to force millionaires to pay tax rates of up to 75 percent: "Cuba without the sun," as described by a critic from the banking industry. Socialist President Francois Hollande's super tax was rejected by a court, rewritten and ultimately netted just a sliver of its projected proceeds. It ends on Wednesday and will not be renewed.

And that critic of the tax? He's now Hollande's economy minister, trying mightily to undo the damage to France's image in international business circles.

The tax of 75 percent on income earned above one million euros ($1.22 million) was promoted in 2012 by the newly-elected Hollande as a symbol of a fairer policy for the middle class, a financial contribution of the wealthiest at a time of economic crisis.

But the government was never able to fully implement the measure. It was overturned by France's highest court and rewritten as a 50 percent tax paid by employers.

Faced with a stalling economy and rising unemployment, the government reversed course in 2014 with a plan to cut payroll taxes by up to 40 billion euros ($49 billion) by 2017, hoping to boost hiring and attract more investments.

Ultimately, while the super tax affected only a small number of taxpayers, it triggered huge protests in business, sporting and artistic communities.

French actor Gerard Depardieu decried it vociferously and took Russian citizenship. Soccer clubs threatened to boycott matches for fear that 114 of their players or coaches would be taxed. The final version of the tax allowed them to minimize the burden.

The announcement of the 75 percent tax had "a very bad psychological effect" in business circles, says Sandra Hazan, a lawyer who heads Dentons Global Tax Group. Even if most of the companies were able to minimize or avoid the tax, "I think it had an extremely devastating impact on the attractiveness of France for foreigners."

At the time of its proposal, British Prime minister David Cameron ironically proposed to "roll out the red carpet" to French companies willing to avoid the tax.

Economist Thomas Piketty, author of the book "Capital in the Twenty-First Century", criticized it as "a millstone around the neck" of the government, asking instead for global reform of tax laws.

Proceeds from the tax are estimated to total 420 million euros ($512 million) for about 1,000 employees in 470 companies, according to the government. By comparison, France's budget deficit has soared well over 80 billion euros ($97 billion).

More attainable and less controversial than abolishing the corporate tax layer would be to lower the rates from highest in the world to being competitive with our OECD trading partners. Lowering these rates would not cost us money, just as punishing these employers for locating here (and forcing them out) is gaining us nothing.

We aren't going to abolish federal income taxation before we win the argument that people should generally be more self reliant, that charities should be the primary source of help, and federal spending becomes of fraction of what it is today (which right now sounds like never).

As we came into 2010, with the reaction to Obama-Pelosi-Reid governance, which was a direct reaction to failed GOP governance, my take on the whole rise of the tea party movement was that in order to ever really cut the burden of over-taxation, what we all could agree on is that we will need to cut spending first. Instead, we call it no growth in spending when Republicans agree with Democrats to make a trillion a year of "emergency spending" permanent.

Obama speech to call for closing tax loopholesReuters 40 minutes ago U.S. President Barack Obama answers media questions with British Prime Minister David Cameron (not pictured) …WASHINGTON (Reuters) - President Barack Obama's State of the Union address will propose closing multibillion-dollar tax loopholes used by the wealthiest Americans, imposing a fee on big financial firms and then using the revenue to benefit the middle class, senior administration officials said on Saturday.

Obama to strike defiant tone with Republicans in big speech Reuters Once dominant, State of Union address has much competition Associated Press Obama tests his sway against a GOP-run Congress Associated Press For State of Union, Obama faces GOP Congress for first time Associated Press Obama kicks off pre-State of Union tour with housing move Associated Press Obama's annual address to a joint session of Congress on Tuesday night will continue his theme of income equality, and the administration is optimistic it will find some bipartisan support in the Republican-dominated House of Representatives and Senate.

The proposals administration officials listed on Saturday may still generate significant opposition from the Republicans because they would increase taxes.

In a conference call with reporters to preview the taxation aspect of Obama's address, one official said some of the ideas the president is outlining already have "clear congressional bipartisan support or are ideas that are actually bipartisan in their nature."

Obama's proposals call for reforming tax rules on trust funds, which the administration called "the single largest capital gains tax loophole" because it allows assets to be passed down untaxed to heirs of the richest Americans.

They also would raise the capital gains and dividends rates to 28 percent, the level during the 1980s Republican presidency of Ronald Reagan.

As a way of managing financial risk that could threaten the U.S. economy, Obama also wants to impose a fee of seven basis points on the liabilities of U.S. financial firms with assets of more than $50 billion, making it more costly for them to borrow heavily.

The changes on trust funds and capital gains, along with the fee on financial firms, would generate about $320 billion over 10 years, which would more than pay for benefits Obama wants to provide for the middle class, the official said.

The benefits mentioned on Saturday would include a $500 credit for families with two working spouses, tripling the tax credit for child care to $3,000 per child, consolidating education tax incentives and making it easier for workers to save automatically for retirement if their employer does not offer a plan.

The price tag on those benefits, plus a plan for free tuition at community colleges that Obama announced last week, would be about $235 billion, the official said. Specifics on the figures will be included in the budget Obama will send to Congress on Feb. 2.

"We're proposing more than enough to offset the new incremental costs of our proposals without increasing the deficit," the administration official said.

The State of the Union address is the president's annual chance to lay out his plans. With Republicans controlling both chambers of Congress after big wins in midterm elections in November, Obama, a Democrat, faces an uphill task turning much of his vision into legislation.

President Obama is pitching his new tax plan as a way to help the middle class at the expense of the rich. But middle-class savers are bound to notice if he achieves two of the White House’s stated goals—to “roll back” tax benefits of 529 college savings plans and “repeal tax incentives going forward” for Coverdell Education Savings Accounts.

Both plans allow parents, grandparents or anyone looking to help fund a kid’s education to contribute after-tax dollars into accounts that grow tax-free. There is also no tax when the money is withdrawn, provided it is used for qualified educational expenses such as tuition, fees, books, room and board.

Mr. Obama wants to allow the IRS to tax as income any withdrawals from future 529 contributions. This would make them less attractive. The White House goal seems to be to discourage private thrift, and encourage greater use of government benefits, when paying for college.

If the plans are closed to new investments and savers, those who stand to lose aren’t the 1%. As of June 30, 2014 there were 11.8 million 529 accounts holding $244.5 billion in assets, according to the College Savings Plans Network, a a group of state officials who administer the plans. The average account balance was $20,671. That sounds like “the middle class.”

The College Board says the average cost of tuition, fees, room and board at a private four-year nonprofit college this year is more than $42,000. So we’re supposed to believe the President is sticking it to fat cats when he targets savings plans that might cover one semester at a private college, or a full year for in-state students at public universities. This now makes you a Rockefeller on Planet Obama.

The Investment Company Institute, trade group for the mutual-fund industry, says that in 2013 households saving for college through 529 plans, Coverdell ESAs, or mutual funds held outside these accounts tended to be headed by people younger than 45. And 49% of these heads of household had fewer than four years of college. A majority of these households, 53%, earned less than $100,000.

Liberals are particularly annoyed that, depending on the state, 529s can allow people to save $300,000 or more for education. But maybe parents and relatives wouldn’t have to save so much if federal subsidies weren’t driving the cost of college to such heights. Again this year higher education costs are increasing faster than inflation, as they have for decades.

We’d favor a true tax reform with lower rates that replaced all tax subsidies, including those for education. But absent such a reform, Mr. Obama’s plan looks like an attempt to punish private savings in favor of politically controlled subsidies and grants.

As he limits Coverdell and 529 plans, Mr. Obama is touting a tax credit of up to $2,500 per year for five years, which should provide most of one year at a state university. He’s also continuing to pitch low interest rates and easy forgiveness for taxpayer-subsidized student loans. And he wants to cut the federal tax on those who have loans forgiven. So there’s an added tax incentive to avoid repayment to complement his tax hike on the suckers who try to pay for college themselves.

One more time the Administration is using the political cover of “middle class” to disguise a transfer of power from the middle class to government.

If there’s any silver lining in the President’s plan to end the major tax benefit of saving for college, it’s that at least he’s not talking about taxing money that’s already been saved. This aspect of the Obama plan is particularly valuable to people like, well, Barack Obama.

As we noted on Thursday, the President wants to allow the Internal Revenue Service to begin taxing distributions from so-called 529 plans, even if they are used as intended to fund legitimate educational expenses such as college tuition. The Obama plan is to treat withdrawn earnings from these savings plans—which are funded with money that’s already been taxed—as regular income to the beneficiary. Therefore this money will be taxed again before it can be used to pay for higher education.

But the President’s plan would only apply the new taxes to withdrawn earnings on money contributed to these accounts in the future. All past contributions to 529 plans would continue to grow and then be withdrawn tax-free to pay for school. This is no doubt a relief to families that have already managed to save significant sums. And it happens to fit nicely in the financial plan implemented by the residents of 1600 Pennsylvania Avenue, a household of two parents and two daughters.

According to a 2009 report in the Journal, in 2007 “the Obamas took advantage of a unique feature of 529 plans that allows account owners to front-load five years’ worth of contributions, $240,000 in total for the two girls.” No doubt these investments took a hit during the financial crisis. But given the stock market recovery since the spring of 2009, we imagine the Obama family has built educational resources that most middle-class families can only dream of.

We would compliment the President on his financial planning and thoughtful parenting in building up these assets tax-free. But his latest policy proposal makes us wonder why he won’t let the next generation of savers do the same.

Correction: An earlier version of this editorial implied the President’s tax on 529 accounts would apply to principal withdrawals as well as earnings.

In a new report called “Rich States, Poor States” written each year for the American Legislative Exchange Council by Stephen Moore, Arthur Laffer and Jonathan Williams, we find that five of the highest-tax blue states in the nation — California, New York, New Jersey, Connecticut and Illinois — lost some 4 million more U.S. residents than entered these states over the last decade (see chart). Meanwhile, the big low-tax red states — Texas, Florida, North Carolina, Arizona and Georgia — gained about this many new residents.

Speaking of economic growth, tax policy is stifling it and no one seems to care. Even here, this thread keeps slipping to the third page of political topics while the US still has the highest corporate tax rate in the world, we had more than 20 new tax increases under Obama, Hillary is proposing another doubling of the capital gains tax rate, and Marco Rubio proposes eliminating it. Yawn. Yet we are shorting ourselves the capital to employ 100 million American adults. But so what, blame the rich, blame Republicans, blame Bush.

Let's bust the myths about tax rates on capital being too low and that raising them will raise money and solve problems. Even articles like this mostly ignore that states like ours add another 10% of ordinary income tax to a 'gain' that is not a gain.

"the rate of new business startups has long been inversely related to capital gains taxes, according to a Cato Institute study. The higher the penalty on risk capital, the fewer new entrepreneurial ventures get started. If we want to accelerate the next generation of Ubers, Groupons, Home Depots and Googles, we need investors willing to put their money at risk, and if they are going to be taxed at 50 or 60 percent, they are more likely to take a pass."

--------------------------------------------------------------Clinton's plan reveals such a deep and disturbing ignorance of the effects of the capital gains tax and its impact on growth that it's time to bust some of the key myths about how this tax affects the economy:

Myth 1) The tax on capital gains income is much lower than the tax on wages and salaries of the working class.

Clinton says she would merely tax income from capital at the same rate that middle-class Americans have taken from their paychecks. She would tax capital gains as ordinary income for those who make over about $450,000 a year. But this would make taxes on capital income punitive and here's why. First, most capital gains come from the sale of financial assets such as stocks. But publicly held companies have to pay corporate income tax at a rate of 35 percent. Capital gains tax is a second tax on that income when the stock is sold. So the actual, total tax rate on capital gains income is closer to 40-50 percent and Clinton would raise that to 60 percent.

Additionally, capital gains tax is a tax on the increase of the valuation of a stock, but is not adjusted for inflation. So when inflation is high, the capital "gain" can be mostly due to inflation. In other words, the gain can be illusory and the tax rate can even rise above 100 percent.

Myth 2) Raising the capital gains tax will raise billions of dollars for the government.

The Clinton plan is almost all pain with no gain. It's highly unlikely the tax hike will raise any money for the Treasury. If history is a guide, it will lose revenue. After the capital gains tax hike in 1986 from 20 percent to 28 percent, capital gains revenues actually fell from $44 billion a year to $27 billion a year by 1991. After Bill Clinton cut the capital gains tax down to 20 percent again, capital gains revenues surged from $54 billion in 1996 to $99 billion in 1999. Lower rates equal more revenue.

Myth 3) Raising the capital gains tax is a good way to make the rich pay their "fair share" of taxes.

Despite Hillary Clinton's assurances that her plan is meant to discourage "short termism" in the boardroom, the real agenda here is hardly a secret: she wants to sock it to the rich. But the irony of this is it won't hurt the Warren Buffetts and the Wall Street hedge-fund managers much. They might have to pay a higher tax bill -- but more likely they will simply hold on to their stock longer to avoid the higher tax penalty. But the people who will get hurt are the middle class, minorities and young people -- the same group that has been clobbered during this so-called recovery.

Wages rise when workers can produce more, and they can produce more when they get smarter, better trained and have more capital to work with. A tax on capital is thus an invisible tax on wages. When Ronald Reagan and Hillary's husband Bill Clinton cut the capital gains tax, wages and productivity surged.

Myth 4) Raising capital gains taxes won't reduce investment.

Clinton herself says that businesses aren't investing enough -- and she's right -- so it's a head scratcher that she has come to believe that more investment will come from higher tax rates on investment. Back in the 1980s, even Democrats such as Bill Bradley and Dick Gephardt appreciated that high tax rates have a negative effect on the economy. Then, in the past decade, the orthodoxy on the Left became: "Tax rates don't matter at all." Now they think higher tax rates are good for us -- which may explain why Bernie Sanders of Vermont wants a tax rate of around 70 percent or higher on the rich.

Funding for venture capital in new enterprises and the rate of new business startups has long been inversely related to capital gains taxes, according to a Cato Institute study. The higher the penalty on risk capital, the fewer new entrepreneurial ventures get started. If we want to accelerate the next generation of Ubers, Groupons, Home Depots and Googles, we need investors willing to put their money at risk, and if they are going to be taxed at 50 or 60 percent, they are more likely to take a pass.

Myth 5) Raising the capital gains tax will help the economy.

The American Council for Capital Formation finds that the Hillary Clinton plan would raise the capital gains tax to nearly the highest in the industrial world. The U.S. already has the highest corporate tax rate in the world, so this would be a double whammy. The Tax Foundation finds that, bang for the buck, lowering the capital gains tax rate is one of the most pro-growth measures Congress could adopt. The optimal capital gains tax is zero.

By contrast, raising the capital gains rate will hurt small businesses, workers and American competitiveness -- and it won't raise any money. How this is fair is beyond me.

Insight: "Our practical choice is not between a tax-cut deficit and a budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy; or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve ... a budget surplus." —John F. Kennedy (1917-1963)

Insight: "Our practical choice is not between a tax-cut deficit and a budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy; or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve ... a budget surplus." —John F. Kennedy (1917-1963)

Yes! If he was alive today, still a Democrat and still held these views, he would be thrown out of the party on his ear.

I like Kennedy's term "restricted economy". It's a little like Wesbury's plowhorse analogy, trudging forward but pulling too heavy of a load to get anywhere or solve anything.

Some will say that Kennedy faced a different circumstance; the top tax rate then was 90%. But no one was paying that rate, we were hugely under-performing and the concepts today are the same. In fact, today we face a far more globally competitive world. Being stupid economically is costing us trillions of dollars and tens of millions of jobs.

What stops us from making tax policy more efficient and competitive today is not deficit or debt fear at 18 trillion and counting, but the fear that someone else will benefit more than us.

Earlier Capital Gains Rate Had an ExclusionUntil the Reagan tax reform there was a 60% deduction or exclusion before the tax was appliedAugust 15, 20154 COMMENTS

None of the letters (Aug. 3) responding to your editorial “Hillary’s Capital ‘Lock In’” (July 27) mention that until the Reagan tax reform there was a 60% deduction or exclusion before the tax was applied. The Reagan tax reform, as I recall, didn’t eliminate the deduction per se, but rather reduced it to zero so the law and regulatory language stayed in place should there have been a subsequent change to the tax law to reinstate some percentage deduction.

Consequently, whatever the tax rate was, it was only applied to 40% of the gain (or rearranging the equation, the capital gains tax rate was effectively only 40% of what the nominal rate was, e.g., 40% of 28% is 11.2%).

A large reason for the exclusion was to take into account things like inflation and the wish to not adversely impact wealth accumulation.

"A large reason for the exclusion was to take into account things like inflation and the wish to not adversely impact wealth accumulation."

It's been along time since I've heard anyone say that didn't want to 'adversely impact wealth accumulation'. Are they saying wealth accumulation is (was) a good thing??

I don't understand the arbitrary nature of it all, hold for one year or exclude 60% etc. Why not deflate the nominal gain by whatever inflation adjustment that the government using elsewhere (COLA) compounded over the life of the investment?

Excessive Capital Gains taxes cause asset paralysis. States penalizing inflationary gains at the top personal income tax rate make it even worse. Taxed only if you sell means don't sell. The result is that assets and resources don't flow easily to their best use, and revenues to the Treasury under-perform too.

Hillary Clinton’s most memorable economic proposal, debuted this summer, is her plan to impose a punishing 43.4% top tax rate on capital gains that are cashed in within a two-year holding period. The rate would drift down to 23.8%, but only for investors that sat on investments for six years.

This is known as a “tapered” capital-gains tax, and it isn’t new. Mrs. Clinton is borrowing a page from Franklin D. Roosevelt, who trotted out this policy during the severe 1937-38 economic downturn, dubbed the Roosevelt Recession. She’d be wise to consider how it played out.

President Herbert Hoover raised taxes in 1932 and expanded the number of brackets to 30 from 23. The top rate skyrocketed to 63% from 25%. But the highest capital-gains rate remained 12.5% until Congress enacted the tapered tax in 1934. Here’s how it worked: 20% of an individual’s capital gains were excluded from taxes after one year, 40% after two years, 60% after five and 70% after 10. This initially resulted in a maximum tax of 40% on capital gains for assets sold after two years.

But things took another left turn in 1936, when the top income-tax rate was bumped up to 79% from 63%. This didn’t smack only top earners. All 15 of the highest rates increased: Those previously in a 40% tax bracket were pushed into a 43% bracket, the 49% bracket became 55%, the 59% bracket turned into 70%, and the top 63% rate increased to 79%.

A separate 1936 bill allowed dividends to be treated as taxable income in all 31 tax brackets. This was a first. Most taxpayers were exempt from dividend taxes before 1936; nobody paid more than a 55% rate.

Yet since the capital-gains tax rate grew in tandem with income-tax rates, the top income-tax bracket increased to 79% in 1936, while the capital-gains tax rate jumped to 63% for assets held one year, 47% after two years, 32% after five and 24% after 10. Even worse, the 1936 law added a surtax on “undistributed profits”—those not paid out as dividends but kept to finance business investment.

It didn’t take long for economic consequences to bubble up: In the 12 months between February 1937 and 1938, the Dow Jones Industrial stock average fell 41%—to 111 from 188.4. That crash presaged one of the nation’s worst recessions, from May 1937 to June 1938, with GDP falling 10% and industrial production 32%. Unemployment swelled to 19% from 14%.

Harvard economist Joseph Schumpeter, in his 1939 opus “Business Cycles,” noted that “the so-called capital gains tax has been held responsible for having accentuated, if not caused, the slump.” The steep tax on short-term gains, he argued, made it hard for small or new firms to issue stock. And the surtax on undistributed profits, Schumpeter wrote, “may well have had a paralyzing influence on enterprise and investment in general.”

More recent research confirms these insights. A 2011 study from the Federal Reserve Bank of St. Louis reported that monetary policy tightening, contrary to received wisdom, can’t explain the 1937-38 recession. “The 1936 tax rate increases,” they concluded, “seem more likely culprits in causing the recession.” Higher taxes on investors tended to fall on the more affluent individuals that supply capital to new firms.

A 2012 study in the Quarterly Journal of Economics attributes much of the 26% decline in business investment in the 1937-38 recession to higher taxes on capital. “Especially important,” University of Minnesota economist Ellen McGrattan wrote, “are the sharp rise in tax rates on individual incomes.” And “although few households paid income taxes,” Ms. McGrattan added, “those who did earned almost all of the income distributed by corporations and unincorporated businesses.” Again, more signs of depressed business investment. After 1936 tax rates on undistributed profits “led to another dramatic decline in investment,” the study notes.

The prospect of steep tax rates from cashing in on investments no doubt reduced wealth and investment, as did higher taxes on dividends and profits. The capital-gains taper’s severe penalties on selling assets before five or 10 years also reduced the liquidity of corporate shares, making it far more hazardous to provide equity financing to new firms.

Relief finally arrived in May 1938, when public ire about the recession prompted Congress to overturn FDR. Legislators shortened the taper to two years from 10 and cut the highest capital-gains tax to 15% from 47%. The surtax on undistributed profits was greatly reduced in that year as well, and abolished in 1939.

The 1938 congressional tax revolt, championed by Senate Finance Committee Chairman Pat Harrison, a Mississippi Democrat, intended to turn a recession into a recovery. Roosevelt allowed the bill to become law without his signature, an unusual way of expressing his disapproval. But Harrison’s plan worked. Stocks lifted immediately—the Dow reached 152.3 in November from 111 in April. The recession ended the next month, and the economy grew 8% in 1939 and 8.8% in 1940.

It is ironic, then, that Hillary Clinton’s fix for an economy suffering under 2% growth is resuscitating a tax scheme with a history of ushering in recessions. The economy would be better off if the idea remained buried.

Mr. Reynolds is a senior fellow with the Cato Institute.Popular on WSJ

@EARL LANGLEY It's only income inequality because someone else has it and you don't. That's the definition of inequality some person having more assets than someone else. Only liberals see a fault in this. Conservatives feel "good on ya" you made some money that you paid income tax on and then you invested the capital that resulted and you generated more wealth from those investments. Now to a liberal that's terrible you're supposed to spend all after tax income and when you run short you get some more funding from the government because you "need" it. Flag ButtonShare8Jack JanzenJack Janzen 15 minutes ago

@EARL LANGLEY

You talk about income inequality as if it were a bad thing.

Correctly viewed if you feel you are on the short end it should be an incentive to do better. This country offers innumerable ways to get ahead. I live a few blocks from recent immigrants who arrived with nothing and are now driving new Cadillacs.Flag ButtonShare1peter strzalkowskipeter strzalkowski just now

@EARL LANGLEY you should think about this Earl, you tax something you get less of it because the transaction becomes more expensive..do tobacco taxes ring a bell? minimum wage? you tax cap gains at a higher rate, people will stop trading and the revenue from does declines, now my 7 yr old understands this so this is a challenge for you bud.Flag ButtonShare